CHAPTER 1 Housing Conspiracy – High Housing Costs
In the US, a worker needs to work only a few hours a month to buy a month’s supply of food. Yet, in some places in the US, a full-time workers’ monthly paycheck is not even enough to pay for the monthly rent of a one-bedroom apartment where he or she works. So, it is not surprising that a worker with a full-time job may be homeless. Could this be the land of opportunity? Why are there so many homeless people in the US? Why are housing costs so expensive in many places in the US? Who is responsible for the high housing costs in those places? What are the impacts of high housing costs? Is there a solution to this problem? This book will answer these questions for you!
It is surprising that there is a crisis of high housing costs in the US today. Building a house is not a big deal. The greatest president in US history, Abraham Lincoln, built his own log cabin. As a statesman, he was second to none, but he was not known as a great do-it-yourselfer. If he can do it, any average able-bodied person can do it.
We can all agree that Abe Lincoln’s log cabin differed greatly from a modern dwelling that we might have today. These days, there are many new materials, machinery, and equipment that Abe Lincoln didn’t have when he built his log cabin. We can count a few dozen different trades in housing construction. Each one of these trades would want you to believe that it is impossible for an amateur to build a modern house nowadays. But don’t let that fool you. Housing construction requires very little skill, just a lot of know-how. In this Internet age, know-how is easy to come by. With a cell phone in hand and an Internet connection, one can easily get any information online.
Building a house today is not much harder than building a log cabin 200 to 300 years ago. When we look at an expensive house, most likely, the expensive part is not actually the house, but the land the house sits on. In 2018, realtor Coldwell Banker’s Website showed that Saratoga, California had the most expensive median price for a 4-bedroom, 2-bath house. This house sounds like a rather modest middle-class dwelling. But in Saratoga, the median price was about $2.5 million. According to the assessor’s record, the land value was about $2 million and the improvement (the house) was about $500,000. The piece of land may be only 100’ x 100’ or 10,000 square feet, less than 1/4 of an acre.
If a person has a 10 acre piece of land in the vicinity, does that mean the land, big enough for 40 houses, is worth about $80 million? Not necessarily. The value of the land depends on what one can use the land for. If one can put 40 houses on the land, then the land is worth about $80 million. If the land is reserved for open space, it may not be even worth $2 million. If one can put 500 units of high-rise condominiums on it, it may be worth more than $250 million. If the land value can vary so much depending on what we may use the land for, then who controls the land-use?
Land-use is a local issue, so local politicians have full control. The United States of America is a democratic country, where voters control all levels of government. Local politicians are elected too, so in theory, voters control local land use. However, once we elect politicians, they have minds of their own. They are not robots programmed to follow voters’ wishes. They are the pillars of society. They are the leaders who guide us. Also, we live in a capitalistic society, and one of the basic rules of Capitalism is that selfishness is not completely harmful.
Under a set of ground rules, everyone takes part in the economic endeavor to enhance one’s own welfare. Yet, together, we benefit from each other and enable the economy to move forward smoothly. So, for politicians, like everyone else, their first and primary concern is how to survive. Everything else is secondary.
What is a politician’s priority? Winning elections! But campaigns need money. The US has a rather clean and uncorrupted government at almost all levels. Voters and various organizations contribute generously to national and state candidates. Some local candidates may have trouble, especially local candidates for small cities and rural counties. A clean government does not allow any illegal campaign contributions. However, every two to four years, local politicians need donations for reelections. It doesn’t take long for them to realize they have absolute power on land-use decisions. It doesn’t take long for them to figure out how to get the most contributions. Imagine that a small city has plenty of affordable housing. There is no need for any new units. The city planning and building department have practically nothing to do at all. Now, imagine the opposite. There is a severe shortage of housing. Housing prices soar. Everyone with a piece of land near the city wants to have the land annexed into the city and wants it to be zoned for housing development. Landowners and developers are dying to win favors from local politicians. This explains the major reason why Silicon Valley has such outrageously high housing prices. There are many little cities and many elected politicians. They all need campaign contributions every two or four years.
How do they make sure that there is not enough supply? The answer is: “Allow mostly single-family detached houses, no high or median rise apartments or condominiums.” It doesn’t take long for politicians to learn that it is not enough just to limit the supply of housing. To make sure there is a severe shortage of housing, they need to make sure there is a steady demand for housing. But high housing costs discourage people from moving in and encourage people to sell and move out. How can local politicians increase demand? If there is no real demand because of high costs, politicians and bureaucrats can create an arbitrary demand by limiting occupancy with zoning regulations. About 40 years ago, almost all cities in California had an ordinance to limit the occupation of single-family detached houses to a maximum of 3 unrelated individuals. A family of 8 may live in a 4-bedroom house, yet 4 coworkers, otherwise unrelated, could not live in a similar house. For example, many cities in California try to limit boarding houses. These cities require a full bathroom for every three occupants. How considerate are the local politicians and bureaucrats? They really care about the welfare of the folks living in a boarding house! When I arrived in Los Angeles in 1962, I lived in a boarding house that had two toilets, two showers, and two lavatories for 24 bedrooms. It should be detrimental for me to live in such substandard housing! It had to be my pure luck that I escaped such poor living conditions without any ill effect. In the morning, there was never any trouble for me to get ready to work. When I needed to take a shower, I did not have to wait. This was how it worked; the toilet, shower and lavatory were not in the same room but separate compartments. So, six residents could use these six plumbing fixtures at the same time. I was very impressed and said to myself: “Wow! This is how rich Americans are!” I noticed that none of the rooms had more than one occupant. This could happen only in America! Anywhere else, some of the rooms would have more than one occupant. Yet, according to today’s zoning requirements, the boarding house needs 6 more full bathrooms. Without the additional bathrooms, the boarding house would be shut down. If these 24 occupants cannot afford today’s housing cost, Los Angeles would have 24 more homeless people and I would be one of them. Every time I think about these senseless zoning requirements, they make me shiver. When I look at a homeless person, I always feel that it could be me! If this zoning requirement makes sense, we need to ask those who put this requirement on the books a simple question: “HOW many restrooms do we need for a jetliner with 150 passengers and crews?” Do we need 50 restrooms? Yes! Why not? If three occupants need a full bathroom, then three passengers on a commercial airplane need a restroom. If the local government really cares about their residents’ welfare, ask them why they don’t put a restroom on every city bus. Let us give a little credit to ourselves: we are the only mammal that can thrive within the arctic circle and any tropical jungle, we can survive in deserts and wetlands and live by the beach or on the Himalayas mountain range.
Politicians and bureaucrats, please just leave us alone! We are very adaptive, and we can get by just fine. We can overcome any natural obstacles, but we are helpless in the face of your senseless rules. Please don’t kick me out on the street!
There is a high housing price problem, but we must know that it is not necessarily the high cost of housing construction. The US is a free country and has a well-established modern transportation system; labor and materials can move freely. The cost of construction is about the same everywhere except perhaps in Hawaii and Alaska. The high cost of housing is high land cost for housing construction. But if we let the free market or the supply and demand to decide the land value, the US should not have a problem with high housing costs at all.
There is plenty of land available for housing construction just about everywhere in the US except perhaps in Oahu (Hawaii), Manhattan, San Francisco, and a few similar exceptions. Even in Silicon Valley, if you drive along Interstate 280 from Los Altos towards San Francisco, you see more open rolling hills than developed suburbs until South San Francisco. With an abundance of land, should Silicon Valley have such a crisis of high housing prices?
It is reasonable and understandable that Manhattan has high housing costs. Similarly, we understand why Oahu, an island, and San Francisco, a narrow peninsula, have high housing costs. Therefore, it is hard to see why anywhere else would have outrageously high housing values in the US.
1.1 The Food Industry Makes Food Inexpensive and Enjoyable
Ever since the dawn of human history, human beings have spent the majority of their time looking for or producing food. To survive, man needs three necessities: food, clothing and shelter.
Out of the three necessities, the importance of food far outweighs the other two. To determine the importance of food, we don’t have to look far. As recently as 1980, China had over 80% of its population living in rural areas, most of them producing food. Today, about 35% of China’s labor force is still in agriculture (in the U.S., this is less than 2%). There are 425 million agricultural workers (200 million farming households) in China. A little over a decade ago, China was home to 700 million farmers. They made up about 60 percent of the population. Yet, during the time of the Great Leap Forward (1958 to 1962), 18 to 55 million people perished depending on which estimate you believe. Out of the total, about 10% of them were summarily executed or tortured to death. The great majority of the rest died from hunger. Authors Joe Hasell and Max Roser in their essay, Famines, 2013, revised 2017, put the number of deaths around 25 million. They also assembled a global dataset on famine from 1860 until 2016. They estimated that in total 128 million people died in famine over this period. [Source; Our World in Data]
If one doesn’t want to look half a globe away to see the importance of food for human survival, we don’t have to. We can look right here at home. Just go back a few hundred years in history. After the pilgrims on the Mayflower landed in Plymouth, close to half of them did not survive the first winter. Poor and inadequate food made the settlers susceptible to disease. They had to work hard and adapt to the changing weather. Lack of shelter was also probably responsible for their hardship. But once a sturdy shelter was built, it lasted at least a couple of years. Even a makeshift shelter would last a few days or more. Food would be their major requirement for survival. Even in today’s world, 800 million people do not have enough food to lead a healthy and active life. That’s about one in nine people on earth. The vast majority of the world’s starving people live in developing countries, where 13 percent of the population is undernourished. Of the three necessities for survival of human beings, food is the most pivotal one. There are crucial differences between the three necessities. If a person has a piece of clothing for protection from bugs, cold or sunburn, that clothing will last for years. Regarding shelter, nobody needs to build a shelter every day. However, food is a daily necessity.
A person can gorge on too much food at a time but still get hungry the next day. A person may amass a large quantity of food, but fresh food only lasts a day or two. Dry food may last much longer, but it is constantly under attack from all sides: from thieves, birds, and animals to invisible bugs, bacteria, and fungi. We cannot over-emphasize the importance of food for human survival. Throughout human history, securing enough food has been a constant effort for people everywhere. No wonder early civilizations all started from river valleys where agriculture flourished and yielded vast amounts of food. Because of the abundance of food in these river valleys, they could release a large portion of the population from food production to engage in other endeavors. The Egyptians in the Nile Valley built pyramids and temples. The Sumerians of the ancient Fertile Crescent of Tigris and Euphrates River Valleys developed the earliest human civilizations. They invented plows, wheels, and writing. The Indians in the Indus River Valley (now northwest of India and Pakistan) developed cotton cultivation to meet man’s clothing needs. They also invented the modern numeral system that was erroneously credited to the Arabs. The Chinese in the Yellow River Valley invented silk, the compass, and printing.
Now let’s look at what science and technology did to help humans survive. The US, with less than 2% of her population engaging in agricultural activities, can not only feed the entire US population but also help feed the rest of the world. Today, the US Federal minimum hourly wage is $7.25 (Year 2020). In some grocery stores, one can find a one-pound loaf of fresh bread for a buck. A worker earning only a minimum wage in the US can earn enough to buy a loaf of bread in 8.5 minutes. This is an amazing accomplishment. This represents tremendous efficiency in the US food production and delivery system. Imagine how long it takes to grow and harvest wheat, transport that wheat to the flour mill, deliver the flour to the bakery, prepare the dough, and bake and deliver the bread to the grocery store. The whole process may take several months and span over a distance of over a thousand miles. Man does not live on bread alone. But if a person can manage his food budget properly and eat only self-prepared meals, he can easily live healthily on about $100 worth of food a month. For an average worker in the US, this is the earning of a few hours’ work per month. We need to take our hats off and salute everyone in the food production and delivery industries, including scientists, farmers, ranchers, bakers, truck drivers, grocery store workers, managers, entrepreneurs, etc. Their efficiency makes inexpensive food available to all of us, so we don’t have to work ourselves to exhaustion just to buy enough food to stay alive and healthy. In America, food is no longer just a critical need for survival. Most people in the US use food for enjoyment or as an expression of our lifestyle. We can afford to be choosy or even picky. In most grocery stores, we can find a wide variety of food ingredients for any taste and budget. You will never find another country anywhere in the world that has such a broad selection of food available as inexpensive as we do here in America. For most people in the US, going to a restaurant to have a meal is just as common as going to a store to buy a bag of groceries. Here, many people do not like to cook. Some people eat in restaurants as often or more often than they cook for themselves. In the 2004 movie, “Super Size Me”, Director Morgan Spurlock’s social experiment in fast-food gastronomy, we see him attempting to subsist solely on food from the McDonald’s menu for an entire month. His weight balloons, his energy level plummets, and he experiences many unexpected — and terrifying — side effects. Most of us do not have any objections to fast food. We decide what we want to eat. Every kind of food is available. If a person overeats, that person will gain weight. If the person has no self-control, they may become obese. If we want freedom of choice, we cannot ignore the responsibility that comes with it.
A lot of people are glad to have so many choices. A meal may cost several hundred dollars per person at a fancy restaurant, but nobody forces anyone to eat there. Luckily, most sit-down restaurants cost only about one-tenth of that amount. Most meals from fast-food restaurants cost only a few dollars or just 1% of a meal at a fancy restaurant. It is great that we have this freedom of choice. Not only we have solved the most crucial part of the problem of survival, but we also have many options for enjoying a meal. For this luxury, we can thank American ingenuity, science and technology, hardworking American farmers, and other workers in food industries and the free market system in the US. Last but not least, we are glad that the government doesn’t get too involved in food production and distribution. The federal government’s food safety inspection program is necessary, and so are our local governments’ health inspection programs for restaurants. It is great that the US Dept. of Agriculture doesn’t go beyond their Diet Pyramid to educate us about our diet. The local politicians in New York City and San Francisco just tax sugary drinks and ban plastic straws in restaurants. I am sure a lot of them would like to go much further because there is a lot to criticize the fast food industry. If we allowed politicians to regulate the food industry as they regulated the housing industry, food prices would have gone through the stratosphere. In the early 1970s, the cost of a typical family house was in the vicinity of $20,000 to $30,000, and a typical family car cost about one-tenth of a family house. A study showed that if a family car was built like the way a house was, the price of the car would have been around 2 million dollars!
Let us take a look at another necessity for human survival, clothing. Thanks to science and technology, the clothing industry, like the food industry, is efficient. Cotton and synthetic fibers are abundant and readily available at a very affordable price. Clothing is inexpensive, functional, and comfortable.
A specially designed dress may cost thousands of dollars, but mass-produced clothing for a man or a woman costs only about two hundred dollars (less than one-tenth of the cost of the expensive ones). If a person’s clothing budget is tight and he cannot afford two hundred dollars to buy a dress or a suit, he can easily buy new clothing for under a hundred dollars. What if a family with children cannot even afford $20 to buy a new jacket for a kid? No problem at all! Just visit yard sales during the weekends! We can find clean and usable clothing for almost nothing or a few dollars at most.
As far as human survival is concerned, finding proper clothing was never as serious a problem as finding food. If it was cold and one didn’t have the proper clothing to stay warm, one could always build a fire to stay warm or migrate to a warmer place. That was when there were no borders or passports and humans were free to wander around. Nowadays, although science and technology have reduced the clothing problem for humans to an insignificant level, millions of people still die of hunger or suffer from malnutrition.
1.2. Shelter is Necessary, but is not as Crucial as Food for Human Survival
Next, let us look at the need for shelter for human survival. Shelter is the third most vital need for human survival. If science and technology can solve the problem of providing food and clothing for human survival, can’t they also solve the problem of providing shelter for human beings? We would think so.
The need for food for human survival is far more crucial than the need for clothing or shelter. If we have any doubt, we do not have to look very far for answers, we just ask ourselves. Given the choice between sleeping in a car for two days with enough food to eat or staying in a 5-star hotel with no food for two days, which one would most of us choose? I don’t need to ponder. I would choose to sleep in a car every time. Farmers, scientists, and entrepreneurs have solved the problem of providing food for human survival so beautifully and efficiently. It seems like builders and developers ought to be able to solve the lesser problem of providing shelter for the US population. We should not ignore the contributions of the free market and the democratic political system. China, during the Great Leap Forward, had neither a free market nor a democratic government. The result of this horrible policy was a famine that killed more than a few millions of Chinese, this number could even be ten times higher. Also, look at today’s Venezuela. Thanks to the socialist authoritarian government, millions of its population are on the verge of starvation.
Unfortunately, the US has a problem providing affordable shelter for her population, especially in California. Why is this? The US has a system of democratically elected government with checks and balance. The media is free and not controlled by any one person or group.
The free market system is viable and functional. Workers in the US put in longer hours than workers in other rich countries. Although the US is the leader in science and technology, some of the hard-working people here have trouble making ends meet. They barely get by and sometimes cannot make it regardless of how hard they work. Why does this happen here? It is not because food is expensive. A worker never needs to work more than 15 hours per month to buy enough food to stay healthy. However, high housing costs can be crippling.
For example, in San Francisco, a person would be lucky to find a one-bedroom apartment for $3000. The city’s minimum wage was $15.59 (July 1, 2020) per hour, more than twice the federal standard. If a person is working for minimum wage, then they need to work overtime or 50 hours per week, just to pay the rent. Even if the person shares an apartment with a roommate, they must spend more than 50% of their take-home pay for rent alone. Something must be terribly wrong in the US, especially in San Francisco!
Throughout most of the history of mankind, people have always needed to spend up to half of their working hours producing food for survival. This began to change after the Industrial Revolution. Still, famine killed a lot more people than lack of shelter did. In the US, we need less than 2% of the workforce to produce food, yet we force lower-wage earners to spend 1/3rd to 1/2 of their take-home pay just for housing. In human history, housing problems or lack of housing rarely killed large numbers of people. The Eskimos can build igloos with readily available materials. The Mongolian nomads can carry their woolen tents with them during a long drive. They can set up their tents in a few hours. Those who live near hilly regions can find or dig caves for shelters. Those who live in areas with warm to hot climates may not need a shelter to survive, though they may want one for privacy.
In the US, science and technology can reduce the costs of food and clothing for human survival to a trivial amount. It seems unreasonable for the cost of shelter to balloon up to half of a person’s income. It has never happened in human history before and it is a shame that it is happening in the US today!
Food and clothing are no longer major obstacles for people’s survival in the US, simply because there are abundant supplies as well as a wide range of choices. A meal at a three-star Michelin restaurant may cost as much as a thousand dollars. Yet, most people can stay alive and healthy with one hundred dollars worth of food a month. A fancy designer’s dress may cost a few thousand dollars, but a lot of people in the US don’t even spend a tenth of that a year for clothing. However, for housing, we don’t have as nearly as wide a range of choices as we do with food or clothing.
In Silicon Valley, the most expensive house may be twenty million dollars. Of course, there are many houses available for one-tenth of that or around two million. But most people with fairly high-paying jobs in Silicon Valley still cannot afford a two-million-dollar house. For those who make only a median or low income, what choices do they have? They cannot afford a two-million-dollar house. Maybe they can afford a place for one-tenth of that, but there is absolutely nothing available at $200,000 a unit. Not even a studio apartment is available in Silicon Valley, at that price.
In some places in California, houses that cost two million dollars per unit may be the most expensive ones. For example, this author lives in San Luis Obispo. Within the city limits, a two-million-dollar house is about the most expensive one. However, one cannot find anything at one-tenth of the cost. No housing units are available at $200,000 a unit. So, it is clear from the history of mankind that the most essential necessity for human survival is food. But the cost of food is no longer a threat to the survival of the majority of the world’s population, at least for those living in rich countries. Not only there is an abundance of supply of food, but there is also a wide range of choices to satisfy the taste of the filthy rich and the needs of the poor. There is an even wider range of choices for clothing.
Yet, when it comes to the choices of shelter, another necessity for human survival, the choice is very limited in the US. Since a shelter costs a lot more than a meal or a dress, the range of choices should be wider and not narrower. This is historically true. A royal palace costs a million times more than the cost of a peasant’s hut. Luckily, we don’t have powerful emperors anymore, and hence we do not need these kinds of choices. The limited choices for shelter in California or the US may not be entirely bad. Everyone either gets the best or nothing. Isn’t it great? If everyone can afford it, it is great! If one forces the best on someone who cannot afford it, the person is worse than a murderer! As a person is almost starved to death, we insist that the person either to have a meal at a Michelin three-star restaurant or to have nothing at all. If a large portion of the population cannot afford expensive housing prices, then the arbitrarily narrow choices of housing are not only unreasonable but also unsustainable. We need to identify the culprits who take our choices away from us and force some of us to spend more than one half of our income on keeping a roof over our heads.
1.3 Limited Choices of Housing: Who is Responsible?
A modern house is quite different from a house built 1000 years ago.
A modern house has a lot of frills and amenities that a house built 100 years ago didn’t have. A modern house has double glazed windows to soundproof the building as well as for insulation, fire sprinkler systems, a gas line and outlets, electrical lights and outlets, indoor plumbing with cold and hot potable water, gas or electrical range outlet, washing machine hookups, an exhaust vent for a stove, garage for automobiles, etc. These are the visible parts.
There are also some hidden features: insulation for the living space, fire-resistant and long-lasting roofing materials, earthquake and wind-resistant structure, a sturdy foundation, etc. But don’t let these frills and amenities intimidate or fool you. If you pay a high price for a housing unit, these frills and amenities contribute very little to the total price.
In contrast, a meal we eat today may not be very different from a meal our ancestors ate a hundred years ago or even a thousand years ago. Maybe we eat a little bit less now because our daily routine is not as physically strenuous and demanding as it was before. Admittedly, a modern house has numerous features to make the occupants’ lives easy, comfortable, safe, and healthy. But the cost of these features is minimal compared to other costs. For example, in 2018, a brand new 4-bedroom, 2-bathroom, single-family house, with a double garage and 2500 square feet of living space was for sale for $250,000 in Waco, Texas.
If this house is located in Silicon Valley, the price will be almost 10 times higher. Just as any realtor will tell you, the value of a house depends on location, location and location! So, if you are wondering who is responsible for high housing costs, the answer is “local politicians, local politicians, and local politicians!” Of course, in Silicon Valley, without including the land, nobody can build a house like that for $250,000, because everything is expensive there. When the housing prices are several times higher in an area, obviously, just about everything else costs more in the area too. Even nationally advertised fast food restaurants are no exceptions. A McDonald’s in the Bay Area where I buy coffees frequently doesn’t sell “senior coffee” as it advertises.
A reasonable estimate of the construction costs in Silicon Valley is probably twice as much as that in Waco, Texas. So, construction costs can justify only a small part of the high housing cost in Silicon Valley or in California. Silicon Valley has a lot of high paying jobs, so there is a high demand for housing and buyers who can afford to pay a high price. Even this may still be only partially correct. In Seattle, there are also a lot of high paying jobs, and thus, there is a high demand for housing and many buyers can afford to pay high prices. But housing prices are far more reasonable in the Seattle area than in Silicon Valley.
One may argue that California’s or even Silicon Valley’s housing prices are far from the most expensive ones in the world. That is certainly true.
TIME magazine dated February 6, 2017, had a short note on DATA (Page 11):
“EXPENSIVE HOMES, LOW WAGES
These are some of the world’s most expensive cities to live according to the 2017
Demographia International survey, which ranks 406 metropolitan housing markets in nine countries using a ratio of median house price to median income:
Table 1: Median House Price to Median Income
| City | Median House Price | Median Income |
|---|---|---|
| Hong Kong | $5,422,000 | $300,000 |
| Sydney | $1,077,000 | $88,000 |
| Vancouver, BC | $830,100 | $70,500 |
| San Jose, California | $1,000,000 | $104,000 |
| Bournemouth and Dorset, UK | $330,900 | $37,300 |
The ratio of “Housing price” to “Median income” was more than 18 in Hong Kong. In San Jose, California, it was less than 10. But the median “Housing Price” and “Median Income” in Hong Kong were not $5,422,000 and $300,000 respectively. TIME magazine obviously forgot to convert Hong Kong dollars to US dollars. The exchange rate at the time was HK$7.8 to US$1. So, the median housing price in Hong Kong was HK$5,422,000/7.8 = US$695,128, which is actually cheaper than the median price in San Jose, Sydney, and Vancouver.
Thus, the TIME article talked about the affordability of median-priced housing units in different cities. A median-priced housing unit in Hong Kong and a median-priced house in San Jose, California were not the same at all. In San Jose, a million US dollars could buy, in 2017, a 4-bedroom 2-bathroom single-family house with a double garage and a spacious fenced yard. In Hong Kong, the land value was extremely high because of the high-density of the population. There were none or few of these kinds of houses. If there was one, it was located on a remote island and cost millions of US dollars.
Most high-price housings are located in cities with high population density, like Tokyo, Manhattan, Monaco, London, etc. But there are exceptions. Sydney, Australia has the second-highest median housing price compared to median income. Australia, with a population of 24 million, is less populated than Texas, but the area of Australia is more than ten times the size of Texas. Granted, Sydney is a bustling metropolis with a population of five million, which is more than 20% of the population of Australia. I talked to a few realtors and homeowners in Sydney about the high housing prices in the city. They said that many of the new riches in China didn’t trust the Communist regime and wanted to put their money in real estate in foreign countries. Sydney appeared to be a popular city for Chinese to buy houses. This was almost the same story I heard in Vancouver in the late 80s and early 90s before Hong Kong was turned over to China when many Hong Kongers bought houses in the Vancouver area and pushed up housing prices.
Texas’ largest city Houston with 2.3 million people is not too far behind Sydney in size. Yet, the median house-value is only about a fifth of that in Sydney.
A report in July 2018, showed that the average price for a condo in Vancouver was $657,000 and the price for a detached home is $1.58 million. The population of Vancouver is only about 600,000. So, it is obvious that the housing price is not decided by the free market and is highly manipulated. Vancouver, Sydney, and Houston are all located on open plains unlike Hong Kong, which is mainly an island and a peninsula, or San Francisco, which is at the tip of a peninsula. So, the three cities, Vancouver, Sydney, and Houston have plenty of room to grow and, thus, ought to have low median-house prices. It is extremely unusual when one is priced five times higher than the other. By 2019, Sydney’s housing prices came down a little and so did the prices in San Francisco. In other words, as there is a limit on manipulated housing prices inflation, it is not likely to sustain for long. Actually, it is far more than just unusual. It is unreasonable. High housing prices are worse than theft or robbery. Theft and robbery do not happen to victims every day. If it happens once, the victims can try to find a way to prevent it from happening again and again. However, when workers spend 1/3rd or 1/2 of their income on rent alone, it is like theft or robbery every month, year after year. The victims may not even know who is responsible for it. Of course, the culprit of this scandal is not a single person or even a single group of individuals.
Millions of people in California are paying or have paid for the high cost of housing. The overpaid amount is huge – trillions of dollars. This huge amount of money is shared by quite a few people. We would like to know who they are.
First, California’s housing prices were not always this high. Right after WW II, when GIs returned home, they could choose to settle down just about anywhere. US Census data shows that, in 1950, the median value of a single-family house was $9223 in Ohio and $9564 in California. There was a difference of less than 5%. But from 2013 – 2017, the median-priced and owner-occupied house was $135,100 in Ohio and $443,400 in California. The difference was more than 300%. Second, rapid population growth in California may account for a small part of the difference. If the free market can satisfy the increased demand in California, then the price difference should be negligible like in 1950.
By the early 70s, I finished a doctoral degree in statistics, got a teaching job and paid off the loan I incurred when I was a graduate student. In 1972, I bought my first house for $23,000. That was 1.5 times my annual salary as an associate professor (beginning level) – not a very high-paying job – at a California State University. In October 1972, the median house sales price in the US was $27, 572, [https://dqydj.com/historical-home-prices, 9/16/2020] much higher than what I paid for my first house!
The house was a single-family dwelling with 4 bedrooms and 2 bathrooms and a two-car garage. Until the early 70s, California’s housing was still fairly affordable. In 2019, a beginning level associate professor’s annual salary was about $90,000 and a house similar to the one I bought for $23000 in 1972, was about $650,000. So, while an associate professor’s pay increased about 5.6 times in 45 years, housing prices increased about 28 times during the same period.
Luckily, it is still relatively affordable compared to Silicon Valley. Unfortunately, San Luis Obispo does not have high-paying jobs like in Silicon Valley. Seattle, Washington has plenty of high paying jobs, but its housing prices are not nearly as high as in Silicon Valley. San Luis Obispo is a small town in a rural area, with an abundance of open fields for housing development, yet San Luis Obispo’s housing prices are comparable to those of Seattle.
San Luis Obispo’s housing prices should be somewhere between that of Waco, Texas and that of Seattle, Washington. Yet, prices are about three times higher in San Luis Obispo than in Waco.
By any standard, San Luis Obispo is a very pleasant place to live. In some reports, it is rated as one of the best little cities to raise a family in the US. So, let us not compare San Luis Obispo to Waco, Texas. Instead, let us compare San Luis Obispo to Santa Maria, a city about 30 miles away in Santa Barbara County.
About half a century ago, San Luis Obispo and Santa Maria had about the same housing prices and population. Half a century later, Santa Maria has tripled the population and one half the housing price as San Luis Obispo. This demonstrates the fact that housing prices and population growth can be manipulated.
Who controls population growth in the US? Legally, no one is in control. The US is a free country, and everyone is free to move around. But practically, local politicians have a lot of control over population growth. They have the final say about any real estate developments.
The high cost of housing in California forced residents to pay trillions of extra dollars. It continues to force residents to pay and it will make residents pay in the future as well for the privilege to live in California. This extra cost is huge. There are a lot of people to blame in the housing establishment in California.
1.4 The Housing Market is not a Free-Market
The housing industry is highly regulated everywhere in the world. The US is no exception, some regulations are absolutely necessary. But every regulation pushes up the housing cost for consumers. Normally, available land and population density are the dominating factors for housing prices. According to these two factors, California, even Silicon Valley, should NOT have high housing costs at all. We need to examine how regulation can push housing prices sky-high and who is responsible.
Because of the high housing costs in California, there are a large number of people who spend more half their take-home income just for housing needs. Are they just low-income workers? Not necessarily.
About 20 years ago, my family doctor had just finished his internship and chose to practice in San Luis Obispo. He complained, causally, that he could not afford to buy a house in the city. If he bought the house he liked, he would need to spend about half of his after-tax income for mortgage payments. He said that he might move out of the state.
A year later, I was due for another annual checkup, and, sure thing, he had left.
If a physician can not afford the high housing costs in San Luis Obispo, there must be a lot of others who are even less able to afford to buy a house. If they spend more than half of their take-home pay for rent, what are their prospects for the future? Bleak at best. If they cannot build up savings to protect them from rainy days, they are only a couple of paychecks away from homelessness.
When a group of people are willing to work hard and contribute to the community, the community has an obligation to allow them to have comfortable and satisfying lives. It is unfair to require anyone to spend half of their take-home pay just for a roof over their heads. It is not good for the community either.
A good community cannot have a group of hard-working people feeling desperate and unhappy, even if they are only a minority of the community. In fact, because they are a minority, they feel that their pleas fall on deaf ears and that their grievances are ignored.
This kind of community is not a stable community.
Many think that if there are people spending half of their take-home income for housing needs or if there are homeless people anywhere in the US, it is a failure of the free-market system in this country. It is obviously a failure of the housing market that there is a great demand for housing and that the housing market is unable to provide an affordable supply of houses to satisfy the demand. The US is a free country with a free-market economy. If a free market economy fails to satisfy the crucial demand for housing, isn’t it a failure of capitalism in the US? Generally speaking, the US economy is a free-market economy and, of course, the free-market economy is based on capitalism. The housing market has failed not only the young people but also a lot of others who cannot afford to live where they like to live or near where they work. In 2019, Donald Trump proclaimed in several rallies: “America will never be a Socialist country!” In 2019, surveys showed that the majority of young people preferred Socialism over Capitalism in the US. When we have young physicians, who cannot afford to live where they practice, it is safe to say that housing expenses are a major burden for most young people in the US today. Can anyone blame young people for turning to Socialism for relief? If another generation of young people feel the same way in the near future, can anyone guarantee that “America will never be a Socialist country”?
1.5 Young People Turn to Socialism
Young people are the future of a country. If the majority of today’s young people in the US favor Socialism over Capitalism, it is very likely, in a generation or two, that the US will become a Socialist country. This leaves two questions to be answered: What was the cause of the rise of socialism in the US? What can we do to remove the cause?
What makes people, especially young people, turn to socialism? In the last few decades in the US, regarding income, the rich are getting richer and the poor are getting poorer.
This fact alone will force some poor people to turn to Socialism for help. But the rich getting richer is nothing new in the US, throughout US history, the rich have always gotten richer. During the industrial revolution, those who were in the forefront of the revolutions in new materials, (iron & steel), in new energy, (coal and petroleum), new machines, (steam and intern combustion engines), new production methods, (interchangeable parts and assembly line), new transportation, (rail road and automobile) and in new communication methods, (telegram and radio), all became super rich. Many view the super rich, like John Rockefeller, Cornelius Vanderbilt, Andrew Mellon, Henry Ford, etc. as captains of industry helping the US to be the dominating superpower. More Americans consider them heroes rather than villains. Most Americans don’t hate the rich just because they are rich. So, the rich captains of the industry didn’t contribute to the growth of Socialism in the US then. Now, the new super rich in the current information revolution doesn’t contribute to the growth of Socialism either. The fact the rich are becoming richer demonstrates that the US is a fertile breeding ground allowing pioneers and innovators to flourish. This represents the strength of the US economy and not a short-coming of capitalism in the US. It has to be something else for the rise of socialism in the US today.
However, one of the major causes of the stagnation of the real wage of unskilled workers in the last 20–30 years in the US is a large number of undocumented workers in the country. By one estimate, there are about 26 million undocumented aliens in the US. Most of them are unskilled workers from Latin America. This group, of course, puts downward pressure on the wages of the unskilled labor force in the US. This is a problem for the US, but it is not within the scope of this book to discuss or to solve the problem.
Next, let us look at the expenditures of low-income individuals. The housing cost must be the largest expenditure for most of them. A lot of them spend half of their take-home income or more for housing needs. A medical bill for a sudden illness or an accident may be extremely high or even far more than the person’s annual housing expense. Thankfully, most of us will not face this type of cost. College tuition can also be very expensive. Luckily, it is not for the rest of one’s life. For most, nothing else will cost them more than the expense of housing month after month, year after year.
When people spend half their income on housing needs, they feel desperate. Who do they turn to? They don’t turn to Republicans for help. Republicans preach small government and self-reliance. We are not talking about freeloaders here. These are full-time workers and may even work overtime. They are just forced to spend too much on housing.
In San Francisco, a lot of city government employees cannot afford to live in the city. The lowest paid custodian reported on the Official City Website on July 25, 2020 was $12.90 per hour between June 2017 to June 2020. Of course, a lot of workers in California are in a big jam, “just about making it”. They will try to get help in any way they can. And who are the ones offering help? Answer: Socialists.
Did it surprise anyone that a great number of young voters enthusiastically supported Bernie Sanders? It should not. When young workers need to spend half of their take-home pay for housing needs, they have little left for anything else. They are desperate and need help. If young physicians cannot afford to live where they practice, the problem is not limited only to low-skilled young workers.
Did Bernie Sanders offer free housing for all? No! He was smarter than that. Even though high-housing costs put a lot of young people in a big jam, Bernie Sanders rarely talked about any housing problem in the primaries. He wanted to offer universal health care and free college education for all. So young people joined and cheered him on in droves.
Bernie Sanders was very smart to avoid discussing the housing problem in the campaigns because it was a national campaign and housing was supposed to be a local issue.
He started his political career in local politics, like most politicians. He was the mayor of Burlington, Vermont, the state’s largest city from 1981 to 1989. He understood very well that housing was highly regulated and controlled by local politicians. He avoided the issue of housing, mainly because he didn’t want to blame any of them for the problem. If he won the Democratic Party’s presidential nomination, he needed all local democratic politicians’ support in the general election. He was smart but not very honest because the housing problem could not stay as a local issue forever and we needed a national solution for the problem. If we want to solve the housing problem, or to be more precise, the problem of HIGH housing prices, can we look for solutions from the socialists? The answer is a big “NO!”